Overstock, an e-commerce giant that ventured into the decentralized space with its tZero platform is at the center of a class-action lawsuit filed against it on September 27 this year. The lawsuit accuses Overstock of security fraud and the firm is currently facing 5 cases against it. Several investors this week filed their motion to consolidate on these cases.
A total of 8 former and current shareholders have expressed their desire to lead the lawsuit which includes the likes of Cohen Milstein Sellers & Toll PLLC, Block & Leviton LLP, Bragar Eagel & Squire PC, Glancy Prongay & Murray LLP, and Kahn Swick & Foti LLC, Levi & Korsinsky LLP, Pomerantz LLP, Bernstein Liebhard LLP.
Benjamin Ha from Block & Leviton LLP claimed that Overstock purposely created a tZero platform to punish short-sellers who sold their Overstock shares. Overstock’s shares have been on a continuous decline along with its dominance in the home goods e-commerce market.
Investors claim tZero was created to artificially inflate the Overstock share price
The lawsuit claimed that Overstock’s dismal performance in its e-commerce market along with declining share prices forced the firm to create a tZero exchange to give it’s business some more time.
Ha claimed that the firm has been struggling to keep up with Wayfair.com and hasn’t recorded any profit in the past three years.
“According to the suit, in September, investors discovered that the company “had engineered the tZERO offering as revenge upon short-sellers and tried to create a short squeeze by offering a digital token dividend that would not be registered and could not be resold for at least six months.”
The tumbling of Overstock shares
The firm had put a tZero digital token dividend lock because of which short-sellers couldn’t hand off their stock even after selling their shares. tZero did rise as high as $27 at one point but soon the investment banks declared that they would not accept the tZero dividend and instead accept cash. The news tumbled the price of the crypto token and Overstock promised to register their stock to end the lockup.
The problems started to creep up right after that, The first company’s CEO Patrick Byrne resigned from his position and liquidated $90 million worth of his Overstock shares. Then the very next month in September when the firm presented its financial report, it was found that the firm misrepresented its financial prospects which tumbled their share prices by 50%.
Byrne stated that the main cause of his departure was not being able to get corporate insurance. He explained,
“The proximate cause for my departure was, in fact, the impossibility of our getting corporate insurance with me still at the helm. Just as we learned in Game of Thrones that behind the scenes the Iron Bank makes the big decisions, in Corporate America insurance companies get the last say.”